Is the PCAOB Fulfilling Its Mandate—or Failing It?

An Evaluation of New Research on PCAOB Enforcement

The PCAOB was created by SOX in 2002 with a simple yet powerful mandate: protect investors by ensuring fair and accurate audits. Congress emphasized fairness, transparency, and impartiality in both inspections and enforcement. But a new study suggests that the PCAOB’s enforcement arm—the Division of Enforcement and Investigations (DEI)—may not be living up to that mission.

Published in Contemporary Accounting Research, this paper written by several accounting professors draws on 33 rare and revealing interviews: 20 with auditors sanctioned by the PCAOB, and 13 with former PCAOB enforcement staff. By applying procedural justice theory, the researchers provide a balanced, insider view of how enforcement really works.

Key Findings: A Process Lacking Fairness

Auditors and former PCAOB staff largely agree: the enforcement process is often misaligned with Congress’s intent. Major criticisms include:

• Representation: Auditors felt their side of the story was ignored. Public reports often included claims they never had the chance to respond to.

• Impartiality: Once targeted, auditors believed enforcement staff assumed guilt and were incentivized to “get a scalp” rather than investigate objectively.

• Accuracy: Orders sometimes presented one-sided narratives, overstating misconduct while neglecting context or investor impact.

• Correctability: With limited appeal options and costly defenses, most auditors settled—even when they felt the process was unfair.

• Consistency: Small firms were seen as easier targets, while larger firms had the resources to resist enforcement.

• Transparency: The process lacked clear guidelines, making sanctions feel unpredictable.

• Respect: While auditors said staff were polite, that respect disappeared if they challenged conclusions.

Incentives That Undermine Fairness

The study highlights a troubling culture inside PCAOB enforcement. Staff careers advanced based on the number and severity of sanctions, not the quality or fairness of investigations. Former staff admitted that enforcement was often “lawyer-driven” and skewed toward easy wins—such as technical filing violations—rather than complex cases tied to true investor harm.This aligns with public statements by PCAOB leadership touting “record-breaking enforcement results,” suggesting that headline numbers have become a goal in themselves, overshadowing the Board’s duty to act as a neutral arbiter.

Why This Matters for Investors and Auditors

When enforcement is perceived as biased or unfair, legitimacy suffers. Auditors may comply out of fear, not respect, which erodes trust in the PCAOB and the very purpose of oversight. Worse, if enforcement actions focus on minor infractions instead of material investor harm, the system punishes auditors without actually protecting the public.

As one former PCAOB staffer bluntly put it:“Our job as enforcers should be to make sure the process is right, not that we win. But too often, we were charging nickel-and-dime stuff with disproportionate impact on auditors’ livelihoods.”

Recommendations for Reform

• Balance statistics with substance: Reward staff for fairness and thoroughness, not just case counts.

• Ensure consistency: Treat small and large firms alike; publish best practices to guide expectations.

• Improve transparency: Set clear guidelines for penalties, and explain explicitly how each sanction protects investors.

• Create real appeals: Make correction mechanisms accessible without crushing legal costs.

• Maintain respect: Uphold professional treatment even when auditors contest findings.

Final Takeaway

The PCAOB was created to restore confidence after Enron and WorldCom. Two decades later, this research raises the uncomfortable question: Has the watchdog become more focused on wins than on justice?

If fairness is sidelined, both auditors and investors lose.

The study calls on the PCAOB and its overseer, the SEC, to realign enforcement with its congressional mandate—not just to punish auditors, but to protect the integrity of financial markets.

Bottom line: The PCAOB’s legitimacy depends not on how many cases it wins, but on whether its enforcement is fair, transparent, and investor-focused.